ACCC supports supermarket grocery discounts

The Australian Competition and Consumer Commission has welcomed moves by Coles and Woolworths to aggressively discount groceries.

The grocery discounts are the latest salvo in the supermarket wars, and come a month after the ACCC took big petrol discounts off the table.

In December, the ACCC ruled Coles and Woolworths couldn't offer shopper docket petrol discounts of more than 4 cents a litre, because the grocery businesses were cross-subsidising the retailers' petrol stations.

"Supermarkets can discount prices off their groceries, that's fine. Petrol stations can discount the price of petrol, that's fine as well.

"It's the cross-subsidy that mattered, not the discount," he said.

"I think you have to let people in one sector discount to compete against others [in the same sector]. The law doesn't stop that, and I don't think the law should stop that."

Mr Sims says the petrol discounts were only available to 20 per cent of Australians, and that where shopper dockets offered petrol discounts of 8 cents per litre or more, petrol prices actually went up.

He says the same concern doesn't apply to discounting groceries, because in that case the supermarkets are competing directly with other grocers, and some of those grocers, such as Aldi, are also offering discounted prices.

At the other end of the supply chain, Mr Sims says the ACCC has no inherent objection to the major supermarkets selling produce for less than its cost of production, or as a loss leader.

"If it benefits consumers, obviously that's good," he said.

"But there's two concerns we would have [about supermarkets selling produce below the cost of production]: if they're selling at a loss for a long time to damage their competition, then that's something we'd have a look at. Secondly, if the way they're funding those prices that are below cost, is by making arbitrary reductions from prices to suppliers or making ad hoc changes to the contracts of suppliers, then we'd have concerns about that.

"Those are the two headings that we at the ACCC are equipped to deal with, and we will.

"What we can't deal with is if, at the end of a contract, if a supermarket wants to insist on a lower price that it pays its supplier, that's not against the Act that we administer. We can't deal with that. What we can deal with is ad hoc arrangements that are seen to breach a contract.

"As a general statement, we have no price control powers, we've got no power to have any involvement in the price that a supermarket wants to buy goods from farmers at. There's no provision in our Act for us to even look at that."

The ACCC's long-running investigation into whether Coles and Woolworths have abused their market power in dealing with suppliers is almost complete, with the findings expected to be handed down in March.

This year, the Federal Government has also pledged to complete a root and branch review of Australian competition law and policy.

Mr Sims says there will no doubt be people calling for all kinds of changes as part of that review, but he's also urged a cautious approach to any significant expansion of the ACCC's role regarding price-setting.

"People have to be careful how far the regulatory reach goes," he said.

"If [the ACCC] starts to have the ability to set prices then that's giving us a very intrusive role.

"It's one thing for us to step in if suppliers are being treated unconscionably in terms of ad hoc payments and variations of contract. That, we are equipped to deal with and we put a lot of resources onto that investigation.

"But getting us to set prices between players, that's a very different step and a very big step that I think would need a lot of careful thought."

ABC Rural contacted Coles and Woolworths for comment on whether discounted groceries would be passed on to suppliers in the form of lower prices.

A spokesman for Woolworths said the company "strives to deliver everyday low prices to [its] customers", and will continue to work with farmers "to deliver Australian produce and get the best possible outcome both at the farm gate and at the checkout".

A Coles spokeswoman said the company aims "to offer a range of different savings across all categories... With all of these discounts available at Coles, we have been saving the average Aussie family around $450 a year."

"Coles is buying 15,000 truckloads more of Australian fresh produce than we were five years ago and work closely with each of our suppliers to ensure that our contracts and pricing takes into account seasonal variability and specific growing conditions," she said.

The vegetable industry says it harbours a level of concern over the ACCC’s comments.

CEO of peak vegetable industry body AUSVEG, Richard Mulcahy, says supermarket discounting of groceries may benefit large scale vegetable producers in the short term, but he questions the ongoing sustainability of such pricing.

“On the face of it, you would say this would lead to stronger activity at the retail level, but we view these announcements with a degree of caution,” he said.

“Who is going to carry the cost of these discounts? If they are going to be the responsibility, in effect, of the grower, even if volumes increase you run the real risk of profitless volume.

“There is no point in selling a lot more produce if you can’t get a reasonable return on investment.”

Mr Mulcahy also expressed concern over the effect such pricing would have on the mindset of consumers and the potential to condition the buying public into expecting exclusively cheap vegetables.

“There is a real risk of that, and the consequent risk is this is that people get out of the industry and say it is simply not worth producing.”